Consequences:

This poses the question how this divergence between the average shareholder composition in German and British companies affects the assessment of the approach chosen by the British legislator. Unlike the German approach, the British approach is connected to the company’s shareholder’s composition. Therefore, the higher number of

234

La Porta, Rafael and Lopez-De-Silanes, Florencio and Schleifer, Andrei “Corporate Ownership Around the World” The Journal of Finance Vol. LIV No. 2 (1999), pp. 492 et.seq.

235 _{Becht, Marco and Meyer, Colin “Introduction” in The Control of Corporate Europe, ed. Fabrizio Barca and}

Marco Brecht, Oxford: Oxford University Press, 2002, p. 4.

236

Goergen, Marc and Renneboog, Luc „Why Are the Levels of Control (So) Different in German and U.K. Companies? Evidence from Initial Public Offerings“ The Journal of Law, Economics and Organization vol. 19 (2003), p. 144.

237 _{Brellochs, Michael „Der Rückzug von der Börse nach »Frosta«, Rechtsdogmatische Einordnung,}

Durchführung und Rechtsschutz in zukünftigen Fällen“ (The retreat from the stock market after »Frosta«, dogmatic classification, implementation and legal protection in future cases), Die Aktiengesellschaft (2014), p.

645.

238

Ding, Xiaoya and Ni, Yang and Zhong, Ligang “Free float and market liquidity around the world” Journal of

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free-floating shares in British companies could affect the protection it offers minority shareholders.

At first glance a free-float of 79,4 percent may be taken as an indication that the presence of majority shareholder is more of an outlier than the norm.

In cases where there is no majority shareholder the impulse to undertake a delisting would likely come from the company’s managers. Here the conflict of interests laid out in Chapter One and with it the question of the protection of minority shareholders in this form does not present itself.

Still, in interpreting these numbers two factors need to be considered:

First, larger companies exhibit a much higher average of free-floating shares, for example the average share of free-floating shares of companies listed in the DAX, as of the 31.12.2013, stood at 81 percent and therefore significantly higher than the 63,1 percent observed for the larger sample during previous studies.239

As the share of free-floating shares did not increase significantly in subsequent years, standing at 82 percent in 2017,240 respectively 84 percent in 2018,241 this divergence cannot be attributed to a sudden increase in the share of free-floating stocks. This in turn means that smaller and medium sized companies will exhibit a somewhat lower share of free-floating shares.

Second, delisting benefits the majority shareholder to a much greater extent than the minority shareholders,242 hence companies with a majority shareholder will be more likely to pursue a delisting on the initiative of said majority shareholder. Additionally, as under British law a two-tier majority is required, companies where due to the presence of a majority shareholder attaining these majorities will be easier, will again be more likely to undertake a delisting.

Therefore, the numbers mentioned above cannot be taken as an indication that the presence of a majority shareholder is an improbable assumption, particularly with

239 _{Köhler, Kristin Investor Relations in Deutschland (Investor Relations in Germany), Berlin: Springer 2015,}

p. 141.

240

Ernst & Young Deutschland, Wem gehört der DAX? Analyse der Aktionärsstruktur der DAX-Unternehmen im Jahr 2017 – Kurzfassung (Who owns the DAX? Analysis of the shareholders structure of DAX-companies in the year 2017 – short version) April 2018, p. 3.

Available at: http://docs.dpaq.de/13676-ey-wem-gehoert-der-dax_1_.pdf

241

Ernst & Young Deutschland, Wem gehört der DAX? Analyse der Aktionärsstruktur der DAX-Unternehmen im Jahr 2018 – Kurzfassung (Who owns the DAX? Analysis of the shareholders structure of DAX-companies in the year 2018 – short version) June 2019, p. 3.

Available at: https://assets.ey.com/content/dam/ey-sites/ey-com/de_de/news/2019/06/ey-wem-gehoert-der-dax- 2019.pdf?download

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regards to delistings. However, they do indicate that a majority shareholder wielding a supermajority of more than 75 percent is a relatively rare occurrence.

5.1.2.5.1 Influence on the first tier:

Where this is the case, the first tier, the majority of 75 percent of all votes, can indeed work as a barrier and force the majority shareholder to win over at least some of the minority shareholders.

5.1.2.5.2 Influence on the second tier:

Furthermore, if only shares held by shareholders holding no more than 5 percent of all shares are counted as free-floating, the likelihood that a second large minority shareholder besides the majority shareholder exists decreases as well.

This assumption is evidenced by the fact that for two thirds of the 200 largest British listed companies no shareholder holding a share larger than ten percent is present,243 while on average the five largest shareholders hold an average combined share of between 25 and 30 percent of all shares.244

This may be the most influential change, as it deprives the majority shareholder of the possibility of cooperating with just one or two minority shareholders while ignoring the remainder. Instead, the majority shareholders will, at least in most cases, find himself in a position where he is forced to construct a broad coalition with other shareholders to attain the necessary majorities at the general meeting and reach his goal.

The same is true for the second tier. If the majority shareholder cannot rely on only one or two larger minority shareholders, as in the examples provided above, he is forced to rely on a broad coalition of minority shareholders instead. As a result, it would become much harder and costlier for him to accommodate only the particular interests of the members of this coalition. Faced with such high costs, and the difficulty of assembling a larger coalition, he would likely result to attempt to bring as many minority shareholders on board as possible by accommodating the interests of minority shareholders in general.

5.1.2.5.3 Effectiveness in the average case:

Thus, where the composition of shareholders does not deviate from the average the criticism of the British solution laid out above would in practice not be relevant. In these cases, the British solution could fully develop its strengths, namely the freedom it gives to the parties and its flexibility.

Where a clear benefit for delisting is given, for example where further capitalization is no longer needed, and the company suffers from the costs associated with the listing, the majority shareholder should find it easy to convince minority shareholders of his plans. Here a delisting could be carried out quickly and, especially compared to the German buy-out offer, cheaply. Where the situation is not that clear the majority shareholder will have to convince minority shareholders to support him, either by bringing forward convincing arguments or by incentivizing them, for example by promising to increasing

243 _{Yavasi, Mahmut „Shareholding and board structures of German and U.k. companies” The Company Lawyer}

vol. 22 (2000), p. 50.

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future dividends. Notably, one possibility for the majority shareholder to attain a sufficient majority would be to make a buy-out offer.

As a result, at least for those companies where shares are distributed relatively equally between shareholders, which as laid out above can be assumed for the average British listed company, the requirement of a two-tier majority should provide adequate protection for minority shareholders, while offering the benefit of being much more flexible and adaptive than the buy-out offer implemented by the German legislator. 5.1.2.5.4 Effectiveness in non-average cases:

However, the higher average percentage of free-floating shares observed for British companies is only an average number.

Even if it implies that situations, where in addition to a majority shareholder, one or two large minority shareholders are present might be less likely it by no means can be interpreted as rendering such constellations entirely improbable.

The British law therefore has to be seen as a trade-off: it offers flexibility and adaptability for most cases, while in those cases where the shareholder’s composition diverges from the average it only offers incomplete protection and may fail entirely.245 The German approach on the other hand offers a steady level of protection, which comes at the cost of a very inflexible regulation, that offers almost no consideration to the individual circumstances.